NBK Money Brief

July 27, 2010 Economic Brief Volume 10, Number 26 Monetary DevelopmentsJune 2010 Credit falls KD 253 mn, driven by loan repayments, following Zain's African assets sale … Deposits flat… NBK’s latest Money Brief stated: June credit posted a large drop, KD 253 mn, largely because of debt repayments related to the USD 10.7 billion Zain deal for the sale of its African assets. For one, the company settled a large syndicated loan, a sizeable portion of which was held by local banks. Meanwhile, Zain paid a special dividend to its shareholders to the tune of over KD 650 million. A portion of that likely went toward debt settlement.We expect the June weakness to be a one-time occurrence (Zain) and look for credit growth to return to modest growth in July.As a result of the large June drop, credit fell 1% month on month (m/m) after recording steady, albeit slow, growth over the past two months. Year on year growth (y/y) continued to slow down and was at 2.7% in June. Monetary HighlightsMillion KD, unless otherwise noted

Meanwhile, deposits remained flat in June, as the large inflow of Zain money was offset by seasonal outflows related to the summer holidays. A KD 162 million increase in local currency deposits was largely offset by the continued decline in FC deposits. As a result, money supply (M2) growth was unchanged during the month. Average rates offered on KD private deposits fell by 1-2 bps across maturities in June still reflecting banks’ comfortable funding levels. Rates averaged 1.07%, 1.25%, 1.48%, and 1.77%, for the 1, 3, 6, and 12-month maturities, respectively.Most of the drop in loans was to the real estate sector, down KD 197 million m/m. The June drop was unusually large, suggesting that it resulted from one-off factors rather than new real estate weakness. Meanwhile, credit for personal facilities also saw a large decrease due to a slide in loans for the purchase of securities. Personal facilities were virtually unchanged outside of securities related loans, pointing to steady consumer spending. The above declines in credit were partly offset by rises in loans to non-bank financial institutions and to the trade sector which were up KD 67 and 60 million, respectively. Remaining sectors were either flat or slightly down for the month.Credit Indicators Percent growth

Credit IndicatorsYear on year growth

The large decline in credit freed more funds in an already liquid market. To mop up the excess liquidity, the Central Bank of Kuwait (CBK) issued KD 149 million in CBK bonds, while an additional KD 68 million remained as idle funds with the CBK. Total bank assets increased by KD 93 million.Liquidity Indicators Liquid assets to total assets Interbank rates The NBK report concluded: The Euro continues to rise against the KD (after hitting a near two-year bottom in early June) following the recent relative increase in confidence in the euro zone, and a weaker dollar. Meanwhile dinar-dollar volatility remains low.